Improving access to finance through banking services

Sri Lanka’s banking sector has continued to expand during the past six months indicating the improved access to finance in the country, the Central Bank said last week.

The continued expansion of banking services indicate the potential for further expansion of intermediation and other financial services available to facilitate economic activities, it said.

Some key indicators of the expansion are as follows:-

* Expansion of banking outlets: Both domestic and foreign banks have continued to expand their branch network. The banks have opened 45 banking outlets such as fully-fledged branches, extension offices and other banking outlets. Of these, 14 were opened in the Colombo district while the balance 31 was opened in locations outside the Colombo district.

Further, 52 new automated teller machines (ATMs) have been installed. Approvals have also been given to open a further 37 banking outlets and to relocate 22 existing outlets with a view to providing improved services and enhancing banking business.

* Growth in core banking: The continued expansion was also indicated in all core areas of banking business such as growth in banking assets (by Rs.175 billion or 8.2%), advances (by Rs. 126 billion or 9.8%) and deposits (by Rs. 101 billion 6.8%) during the first five months of 2007.

* New products: Several banks have introduced innovative products and services to suit the customer requirements and improve the efficiency of banking services. Remittance products targeted for migrant workers, facilities to settle utility bills, deposits products (savings and fixed deposits) with added features, access to on-line investments facilities and arrangements to provide banking services through mobile phones are some of the products introduced by the banks to enhance access to finance. Banks are also moving towards sourcing lease finances through innovative methods such as securitization.

* Increased participation of foreign banks: Some of the foreign banks have begun strong competition in retail banking.
They are also engaged in lending to SMEs and Microfinance, which would help financial inclusion at grass root level. Some banks have taken the initiative of making agency arrangements with establishments that have wide operations networks such as the postal network to widen the access to their services.

Further, having seen the business potential in large infrastructure projects, some foreign banks are arranging new funding sources through own borrowings from abroad and loan syndication to provide necessary funding for such projects. This augurs well with the Public-Private Partnership (PPP) Program initiated by the government in financing large infrastructure projects.

* Strengthening the banking infrastructure: In order to further increase access to finance, several banks have agreed to install a common payment switch which would facilitate local clearing of payments transactions and reduce transaction costs to customers. Further, a SWIFT Service Bureau will be established in Colombo shortly and that will reduce high SWIFT charges on banking transactions.

Banks not playing pro-active role
In a letter, in response to this press release, economist R.M.B. Senanayake said the banking sector was not playing any role in developing the poorer segments nor the rural areas and not promoting entrepreneurialism. “What is needed is to pay attention to the Sanasa banks, cooperative banks, other micro-credit institutions, etc. What is needed is not regulation but support not necessarily by way of money but advice and guidance from persons with experience in handling micro-finance. Such experts can be obtained from abroad and their services should be made available.

There should be constant interaction between the Central Bank and these institutions with a view to understanding their problems and then providing them technical assistance. Also training their staff in the normal commercial banks, giving them assistance in accounting and auditing etc. These institutions have to play an important role in providing banking services to the small man and small entrepreneurs.”